Taxation Reforms Pose Broader Risks to Housing and Economy
Recent discussions on potential adjustments to capital gains tax (CGT) discounts and negative gearing have primarily focused on rental supply and tenant impacts. However, a new independent report highlights that the consequences extend far beyond tenants, affecting new housing construction, employment, and overall economic health.
Modelling Reveals Significant Economic Impacts
Commissioned by leading industry bodies including the Real Estate Institute of Australia (REIA), Master Builders Australia, the Housing Industry Association, and the Property Council of Australia, the report titled The impacts of potential housing policy settings was conducted by Qaive and Tulipwood Economics. It models various scenarios involving the removal or reduction of negative gearing and the CGT discount, all of which predict negative outcomes for housing starts and construction employment.
Key findings from the modelling include:
- Eliminating negative gearing for most rental properties, except one per investor, could reduce GDP by $3.1 billion in net present value terms and cut dwelling starts by 45,500 over five years (2025-26 to 2029-30). Construction jobs would decline by an average of 4,250 full-time equivalent positions annually, with rents rising over 2% per year above baseline levels by 2029-30.
- Restricting negative gearing to new construction only, while grandfathering existing arrangements, would lower GDP by $1.6 billion and reduce dwelling starts by 22,750 over the same period. Construction employment would fall by 2,000 FTEs per year on average, and rents would increase nearly 1% annually above the business-as-usual scenario.
- Halving the CGT discount to 25% would result in an $822 million GDP reduction and 12,000 fewer dwelling starts over five years, with construction jobs dropping by 850 FTEs per year on average and rents rising marginally above baseline levels.
- A combined policy of halving the CGT discount and limiting negative gearing to a single existing property could lead to a GDP fall exceeding $3 billion and nearly 46,000 fewer housing starts.
Contradiction with National Housing Goals
These findings come at a critical time, as Australia faces a housing crisis and struggles to meet the targets of the National Housing Accord, which aims to boost housing supply. The report underscores that increasing taxes on housing could exacerbate the shortage, contradicting the accord's objectives.
Suzanne Brown, President of the Real Estate Institute of Western Australia (REIWA), emphasized the urgency of the situation, stating, "Now is the time to introduce policies that boost new housing supply. We cannot afford policies developed in isolation that would stall or reduce the number of new homes being built."
The modelling suggests that without careful consideration, tax reforms could hinder efforts to address the housing crisis, impacting not only renters but also the construction industry and broader economic stability. For more details, the full report is available on the REIA website.
